Cutting Through the Media Talking Heads

Here is an article from CNNMoney today that talks about the surprising 3000 extra units that sold nationwide in November. Those who know me, know that the talking head nonsense of mass media real estate coverage drives me batty. The lack of creativity and the lever-pulling regurgitation of soundbites is a disservice to consumers, and I might add, to journalism. So what I’m doing here is pasting the article in normal font, and inserting my thoughts in italics.

Home sales rise 5.6% in November

By Blake Ellis, staff reporterDecember 22, 2010: 11:01 AM ET


NEW YORK ( — Existing home sales picked up steam in November, though they are still down nearly 30% from this time last year. A

Sales of previously-owned homes jumped 5.6% in November to an annual rate of 4.68 million, the National Association of Realtors reported Wednesday. The rate was down 27.9% from 12 months earlier, when a homebuyer tax credit helped lift sales to a two-year high of 6.49 million.

The report came in slightly better than expected. A consensus of experts surveyed by had forecast an annualized sales rate of 4.65 million.

Okay, so picking up steam and unit sales jumping and 30% equals 27.9% and the experts predicted a sales rate of 4.65 million and it came in at 4.68 million. There are at least two stories here: one, sales are not as strong as they were last year when inventory levels were lower than expected and the first-round of the tax credit worked better than expected. The second story is that sales beat expectations in technical terms, but it was all of 3000 units annualized, which on monthly basis amounts to about 250 more sales in November NATIONWIDE then expected.

Despite low home prices and mortgage rates, the housing market has continued to struggle through the recovery. Existing home sales slowed in October, following two straight months of gains. But those gains came after home sales sank 27% in July, hitting the lowest levels in 15 years.

What am I missing? The sales rate in November was off 27% and so was July, but there is no mention of that? Weren’t both of these off 27%? Yes, but no. November is a more volatile month and the unit sales tend to be smaller this time of year. July is a more reliably strong month. A bad July for REALTORS is like a bad December for retailers.

“This report doesn’t necessarily mean the housing market is getting better,” said economist John Canally of LPL Financial. “We’ve taken a couple steps forward, one step back, and this is a step forward, but next month might be another step back — these things tend to go in fits and starts.”

In other words, I have no idea what next month might hold, what’s going on, why it’s going on, but thank you CNN for asking me for insight.

But Lawrence Yun, NAR’s chief economist, is hopeful that homebuyers will take advantage of improving affordability.

The economist is not relying on data, but hope. Cue consumer sarcasm.

“The relationship recently between mortgage interest rates, home prices and family income has been the most favorable on record for buying a home since we started measuring in 1970,” he said. “Therefore, the market is recovering and we should trend up to a healthy, sustainable level in 2011.”

Wait. That sounds fact-ish. That sounds like actual analysis. Why is this called hope?

The inventory of homes on the market dropped 4% in November to 3.71 million units. Canally said inventories are well below their peak, but a level around 2.2 million units is considered healthy.

This is where I go off… why are inventories below their peak? Is there any reason at all? What has happened to bring inventories down? I’d like to know. Seasonally, when do inventories peak? Don’t inventories peak May through August? So why would inventories be at their peak in November anyway? Why is 2.2 million units considered a healthy inventory? Is this based off the 4.68 million unit annualized projection to roughly equal 6 to 7 months of inventory? Or is this based on data from 2005 and an expectation of 5.5 million to 6.0 million sold units, which would make inventory 3 to 4 months, a definite, guaranteed, upwardly appreciating market? Who would not want such guaranteed information in any economic transaction? Why is 2.2 million considered healthy? Is this like the FDA’s 2000 calorie diet that should fit all 308 million people?

The median price of all existing homes sold during November was $170,600, up a modest 0.4% from a year ago. About two-thirds of homes sold during the month were in foreclosure, NAR said.

I’m now pounding my head against the desk. Earlier it was revealed that November 2009 was an artificially high month for sales activity because of the expiring wave of tax credits. Sales values are up from a big month for buyers. If the market is sputtering along why would value be up? But that’s not even the critical thinking, that’s the obvious thinking speaking. The bigger reality is that in November 2009, half the buyers buying were first-time buyers who were not going to miss the tax credit with a closing that lingered out of November into December. So short-sale, foreclosure and new construction properties were not the targets for buyers in November 2009: it was turnkey, handshake, non-distressed resales. This November, two out of three sales were distress sales. Buyers paid more for distress sales this November than non-distress sales in a twelve month period. Less than a month ago it was reported that the average bank-owned property sold at a 31% discount over a non-bank-owned property nationwide. I’m not at all saying that prices have increased 31% in twelve months, but I am saying junky homes in November 2010 sold for more than nice homes in November 2009. That’s a pretty serious statement about recovery happening somewhere.

“The fact home prices went up is a good sign and shows that the housing market is continuing a slow recovery,” said Canally. “But home prices are still bouncing along the bottom.”

As Mr. Canally has already said, we don’t know what might happen next month, so yet again, his soundbite is framed in a mixed bag. Poor guy. Here is what might happen in December: We might have a smaller sample pool of units that leads to lower prices. All of still-expensive California is underwater and that undoubtedly will delay some closings tweaking the national average. I’m trying to figure out why Mr. Canally said his first sentence first and his second sentence, second. Trying to reconcile “but”, but I can’t. I guess I’m too much of an optimist to psycho-analyze a pessimistic (or at least presented as pessimistic) viewpoint.

While Canally said the housing market has a long way to go on its road to recovery, he agreed with Yun that sales are likely to gradually improve in the coming year.

“Banks still aren’t willing to lend, but we’re working down that inventory, the job market is getting better and affordability is at an all-time high,” he said. “And now that we’re six months removed from the homebuyer tax credit there’s nothing pushing the market one way or another, so we’ll get a gradual recovery — no boom and no bust.” To top of page

Poor Mr. Canally. He can’t win. Why does the elimination of tax credits lead to a gradual recovery? It’s like he said something between the two sentences like “three out of four factors that influence the market are improving, so we should see some recovery next year” and that sentence was conveniently edited out. Even worse, here is all this hyper-analysis for a 250 unit “surprise gain” in November and he has this conclusive sounding statement “no boom and no bust” wrapping it all up. There is language about jumping and gaining steam, and struggle and hitting, and fits and hope and healthy (2) and bouncing along the bottom… it’s data colored by language bordering on hyperbole. Yeah, we’re accustomed to this kind of language in all of our media consumption, but words have meaning. To use words that are so all over the emotional spectrum and then conclude with “no boom and not bust…” well the rest of the report doesn’t lend itself to such a neat and tidy conclusion.

My point in writing this: data can prove anything. If you are selling a home, you’re participating in the market. A participant has the responsibility to ask critical questions. If you are buying a home, you’re participating in the market. A participant has the responsibility to ask critical questions.

Be thoughtful.

Be inquisitive.

Challenge the assertions.

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